Select Committee on Trade and Industry Minutes of Evidence


Memorandum by the Construction Products Association


  The Construction Products Association represents companies that manufacture and supply products for the construction industry. The industry it represents has an annual turnover in excess of £30 billion and accounts for some 20 per cent of UK manufacturing output. Members of the Association include virtually all the major companies in our industry, many of whom operate on a global scale, as well as nearly 40 sector specific trade associations. In this way the CPA provides a single voice for manufacturers and suppliers of construction products in their dealings with government and other bodies. A list of the Association's membership is attached.


  The major companies in our industry have considerable experience of manufacturing in many different countries throughout the world and they regularly benchmark productivity between the various plants across their group. On the basis of this, several companies seriously question whether there is a productivity gap between UK operations and those in other countries in Europe and North America. From their experience UK operations are at least as efficient as elsewhere and they would be pleased to amplify this to the Committee if it would be helpful.

  Having said this, no one in the industry disagrees with the need to look continually at ways of improving performance and raising productivity. Unless a company is committed to this it is becoming increasingly difficult to survive in the highly competitive international market in which companies increasingly operate. Following the Government's announcement of its Enterprise for All agenda in the summer of last year, the Association has considered with its members a range of ways in which government can assist the industry and improve its competitiveness, and these are summarised below.



  There can be no dispute that over the years successive Governments have increased the burden on business through additional regulation, increased taxes, or both. Often it is not so much the measures themselves that impose the burden on business, but rather the means by which these are required to be implemented. As a result valuable staff resources are diverted away from improving the performance of the business into non-value added activities.


  There has been a general move towards more family friendly policies. It must be recognised, however, that the extent to which these are developed must be consistent with the need for managers to run their companies efficiently. This can sometimes be particularly difficult for SMEs, and in developing polices on issues such as paternity leave and the right to return part time, there needs to be more flexible implementation and higher exemption levels so that the burden on businesses most at risk from these policies is minimised.

  The importance of protecting the environment is widely recognised amongst members of CPA as our industry has a closer link to the environment through the manufacture and use of our products than many others. Where environmental regulation poses an unreasonable burden on business, however, is the time it often takes to gain approval from bodies such as the Environment Agency; the need for repeated applications for approval of processes already widely accepted in mainland Europe; and the inconsistency in decisions between different parts of the same organisation. All this occupies valuable management time and expense invariably without providing an improved environmental solution.

  In the areas of health and safety any responsible employer fully recognises their responsibility to their workforce and has a good working relationship with the Health and Safety Executive to secure a safe working environment for all their employees. Regulation should only be introduced, however, where there is clear evidence to show that it is needed to protect employees. Many of the unreasonable burdens imposed on manufacturing industry in this country originate in Brussels and we would like to see the Government be far more forceful in resisting such measures. The Committee may be familiar with a current Directive on Physical Agents, which has recently been considered by the European Parliament and where amendments were made to the proposals on workers' exposure to vibration and noise, which would impose an enormous additional cost on industry. In neither case can the more stringent measures introduced by the European Parliament amendment be justified by clear medical evidence. It is these kinds of measures that run completely counter to all the efforts of industry to become more competitive and productive.

  The Government has recognised the serious shortcomings of the Planning System in its recent Green Paper. Delays in the decision making process, unpredictable outcomes, and a lack of understanding of business needs are amongst the many failings of the current system which add costs to business, hindering rather than assisting efforts to improve competitiveness. Proposals in the Green Paper are a positive step forward, but in our view still do not go far enough to ensure that sufficient priority is given to handling planning applications from industry quickly and efficiently, and in a way that encourages manufacturing industry that has a choice where to invest, to identify the UK as their preferred option.

  Planning is also responsible for major delays in attempts to improve the transport infrastructure of this country which is so vital if we are to improve our international competitiveness. The delays associated with reaching a decision on Terminal 5 at Heathrow are a particularly high profile example, but equally important to many of our companies are delays in key road projects. Proposals to take the major decisions on the principle of developments like Terminal 5 to Parliament is welcomed, but we remain to be convinced that the Government's proposals in the Green Paper will significantly reduce the time taken to approve some of the other infrastructure proposals. Government urgently needs to address these issues if it really wants to help improve the productivity and competitiveness of UK industry.


  The tax burden on business has undoubtedly increased over recent years and there are plenty of measures to demonstrate this. As with regulations, it is often the administrative burden that is as costly to business as the fiscal measures themselves.

  The introduction of a minimum wage even imposes an administrative burden on companies that pay all their staff well above this level, and whilst Working Family Tax Credit has no direct cost implications for companies, it is wholly unreasonable to place responsibility for administering this on to individual companies. There are examples in our sector where new payroll software has had to be introduced for the sake of one employee who is eligible for WFTC. Government should take full responsibility for the costs associated with introducing and implementing such measures.

  Undoubtedly the most harmful tax measure to affect industry has been the Climate Change Levy. Government repeatedly defends its position by stating that the levy is revenue-neutral to business, but conveniently ignores that this is anything but revenue-neutral to manufacturing industry. The additional direct cost to the construction products industry (after taking into account the rebates available to those in negotiated agreements and reduced NICs) is estimated to be £80 million per annum. In addition there are substantial administration costs for those involved in negotiated agreements. The use of IPPC as a proxy for those eligible for negotiated agreements has also created many anomalies.

  To impose such a measure on manufacturing industry at a time when it is already in recession seems wholly inconsistent with the key Government objective of helping industry to improve its productivity and competitiveness. Whilst we recognise the levy will not be removed we have strongly urged Government to extend the opportunity to enter into negotiated agreements to all in manufacturing. To take advantage of this, companies would have to enter into binding commitments, to reduce their energy use, therefore strongly supporting another key government policy. Such a move would not conflict with our obligations to the EU and would benefit the remaining parts of the UK sector who are competing on an uneven playing field with the rest of Europe where energy taxation is much less of a burden on manufacturing industry.

  Transport taxes remain the highest in Europe and the response of the Government to the fuel protests in the autumn of 2000 has done little to ease the situation. Transport is critical for an industry that accounts for the largest volume of freight moved by road in this country. The recent Treasury consultation document on "Modernising the Taxation of the Haulage Industry" merely re-allocates the existing burden and quite properly proposes to bring lorry operators from outside the UK within the scope of the new arrangements. The CPA believes there needs to be a far more fundamental review of all transport taxes in order to assess their impact on industry competitiveness.

  The Aggregates Tax to be introduced in April will add considerably, not just to the cost of quarry operators, but also those who use their products in manufacturing processes. Independent research has shown that this is not a measure that will benefit the environment in the way the government intended, and it will lead to a number of companies, particularly SMEs, going out of business.


Skills and Education

  Industry is continually disappointed by the number of people leaving school at 16 without basic skills in numeracy and literacy. This places a considerable burden on industry before they can even start to train them in the basic skills needed to work in manufacturing operations. Government needs to look at why the school system is failing in such a key way and to provide financial support and incentives for companies to work in partnership with local colleges to provide appropriate training in these basic skills and in job-related skills.

  There is a growing concern that the pendulum has swung too far in encouraging students to stay on for post-16 college education, whereas for some formal training in industry with structured programmes of day release at college would be more appropriate. Many of the companies in our industry believe such a shift in emphasis could have a significant effect on improving the skills of those they employ and as a direct result the company's competitiveness.

Capital Investment

  Investment in both new and improved buildings and plant and equipment can make a significant impact on productivity. Industry believes more can be done through capital allowances to encourage companies to make these investments.

Research and Development

  The CPA welcomes the Government's proposed extension of the R & D tax credit to all companies. Whilst the Treasury has still to announce the conclusions of the recent consultation exercise on how the tax credit will operate, we urge the introduction of this measure at the earliest opportunity so that there is a real incentive to business to invest in R & D in the UK and make UK manufactured products internationally competitive.


  The poor condition of the country's transport infrastructure was well documented in the recent report by the Commission on Integrated Transport. If manufacturers in this country are to be competitive, particularly in an industry like ours, it is essential that the Government's proposed £180 billion investment in transport infrastructure actually materialises within the time frame set.

Secure Home Markets

  Government accounts for nearly 40 per cent of investment in construction. Its investment has, however, been unpredictable and invariably falls well short of what was anticipated in its original spending plans. This has discouraged long-term investment by companies in our industry, and not provided the secure home base that permits them to train and retain experienced staff.


  E-Business provides one of the greatest drivers to improve productivity and competitiveness in UK manufacturing. The government has done a great deal to ensure that the UK is at the forefront of these developments through incentives to businesses, particularly SMEs, to invest in this new technology and to train staff. There are still some companies, however, where there needs to be a greater awareness by those in senior positions to the opportunities that ICT offers and the fundamental changes to a company's culture that this often requires. We feel Government may be able to do more to raise the strategic issues surrounding this with those at the top of companies.


  CPA conducts a quarterly State of Trade Survey of its members. The most recent Survey does not suggest there has been a dramatic fall in sales in our industry following 11 September. Whilst there was a small balance of firms (-5 per cent) that saw sales fall in the final quarter of the year compared with the third quarter, a balance of 61 per cent of firms saw sales higher in the fourth quarter compared with the same quarter at the end of 2000. Companies also remain positive (+29 per cent) that sales will increase in the first quarter of 2002 and a balance of 51 per cent of firms are forecasting that sales in 2002 as a whole will be better than in 2001.

  The two most recent surveys also asked specific questions about the effect of the events of 11 September on individual companies.

  Have events of 11 September had an effect on your Business Activity?
Response on 30 September Response on 31 December
Yes78 per cent85 per cent
No22 per cent15 per cent

  As the table shows, the majority of companies in our sector were affected, and this increased between the September and December Surveys. The main effect seems to have been a delay to construction projects rather than for them to have been postponed altogether.

  We also asked what effect there had been on other elements of their business and the results are shown in the next table.

Increase 30/931/12 No Change 30/931/12Small Decrease
Significant Decrease 30/931/12 % Balance 30/931/12
Total Order Book04 487052 2600-52 -22
Exports00 678628 955-33 -14
General Business
4 41131 6662194 -81-62
Investment Intentions4 0748519 1540 -19-15
UK Consumer
0 41148 7044194 -89-44

  Whilst the first table shows an increasing proportion of business being affected by 11 September, this second table shows that the intensity of concern has diminished between the September and December surveys. The main concerns still surround business and consumer confidence.

  Finally, the survey also looks at the investment intentions of companies in the construction products industry.

  Comparing the answers to this question in the last three surveys shows a significantly positive balance of companies intending to increase their investment in key elements related to competitiveness and productivity, and these seem to have been largely unaffected by the events of 11 September.


  Manufacturing remains a key part of the UK economy and the Association welcomed the recent speech by the Secretary of State for Trade and Industry emphasising this. In the highly competitive global economy in which all our companies now operate, it is essential to continually be looking at ways of improving productivity and competitiveness. We welcome the Trade and Industry Committee's decision to inquire into the factors affecting this, and hope that in the recommendations of the review they emphasise particularly the importance of government and industry working in partnership to achieve a common goal.


  Aggregate Industries plc, Baxi Group Ltd, Blue Circle Industries PLC, BPB plc, Caradon Plumbing Limited, Corus Group (UK) plc, CRH plc, Etex Group SA, H+H Celcon Limited, Hanson PLC, IMI plc, Knauf UK, Lafarge Redland Aggregates Ltd, Marshalls plc, Owens Corning Alcopor (UK) Ltd, Pilkington PLC, RMC Group plc, Saint-Gobain plc, Tarmac Group—plus a number of smaller companies.


  Access Flooring Association, Association of British Roofing & Felt Manufacturers, Association of Building Hardware Manufacturers, Association of Interior Specialists, Bathroom Manufacturers Association, Brick Development Association, British Aggregates Association, British Cement Association, British Ceramic Confederation, British Combustion Equipment Manufacturers Association, British Non-Ferrous Metals Federation, British Plastics Federation, British Precast Concrete Federation, British Stone, British Wood Preserving & Damp Proofing Association, Builders Merchants Federation, Cementitious Slag Makers Association, Clay Roof Tile Council, Door and Shutter Manufacturers Association, Eurisol Fibre Cement Manufacturers Association, Flat Glass Manufacturers Association, Glass & Glazing Federation, Guild of Architectural Ironmongers, Gypsum Products Development Association, National Prefabricated Building Association, Quarry Products Association, Single Ply Roofing Association, Society of British Gas Industries, Society of British Water and Wastewater Industries, The Clay Pipe Development Association, The Lead Sheet Association, The Metal Cladding & Roofing Manufacturers Association, Timber Trade Federation, UK Steel Association, Waterheater Manufacturers Association, Wood Panel Industries Federation.

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Prepared 14 June 2002